These are edited excerpts of the interview.
Q: A lot has happened since the last time we spoke. There’s this 50% tariff, which now, of course, has become reality. And it’s kind of a waiting game between India and the US. It doesn’t look like either side is going to blink. So, I just want your thoughts on why this has happened, and what’s the end game here? Is it 25% base tariffs and 25% tariffs because of Russian oil?A: Trump has gotten exasperating news from Russia. There hasn’t been any decline in the situation in Ukraine, and this has made him very frustrated, so he’s taking it out on India. He’s hoping that India will help, but I’m afraid his hope is going to be shattered, because obviously India doesn’t want to give up its imports of oil from Russia. And at the end of the day, even with the big tariff increase that you’re talking about, it will hit the exports from India. Maybe 40% of exports will be hit.
And the most important thing is that the big sectors that are going to be hit in India are the high labour content sectors, such as jewellery, gems, garments, that sort of thing. Unfortunately, that will hit a lot of workers that need jobs in India. So hopefully the government can do something to alleviate this difficulty. But it must be remembered that pharmaceuticals and electronics are off the list. They will not have this tariff, so those exports will continue to flow to the US. The impact on India, from a gross domestic product (GDP) point of view, is maybe half a percent, at most, a 1% hit on GDP. So, when you look at the big picture, it is not going to be that big an impact in terms of the growth in India and in terms of the health of the Indian market.
Q: You’re saying Trump will be disappointed if he thinks these 50% tariffs will work with India. He will get what he wants by imposing this. 25% – you don’t think it will?
A: No, I think he will be disappointed. Now, of course, we’ve seen Prime Minister Narendra Modi holding hands with Russian President Vladimir Putin. That is not going to be very encouraging to Trump. So obviously, the US is going to have to step back. And probably they will begin to realise that India is not going to give in to the pressure. So Modi has given a clear message to Trump that he will not be pressured. And for good reason. India has got to stand up to this kind of imposition in terms of trade.
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Q: But what’s the end game here? This 50% surely cannot be permanent.
A: I think they will reach an agreement. I would give it maybe two or three weeks, and you’ll see the US coming to the table again and negotiating something with India so that this is not going to take place. India may make some small concessions, but at the end of the day, it will be the US that will have to step back.
Q: In your assessment, because this is a bit of an overhang in terms of percentage impact on GDP, it is small. It does, as you said, hit labour-intensive sectors, but it is an overhang, right? And it goes beyond tariffs and numbers, etc. This is a strategic long-term relationship which is soured, and hence I’m asking this question. In your mind, how long do you think this drags on?
A: I don’t think it’ll drag on too long. I’m talking about weeks before they will come to the table and reach some kind of an agreement. Because, as you mentioned, the strategic partnership is very important to the US. And the US will have to pull back on some area — definitely tariffs — but in other areas, too, they’ll have to reach some agreement. Because the relationship between the US and India is very, very important to the US.
Q: So you believe de-escalation is a matter of weeks, according to you?
A: I think they’ll make some agreement that will de-escalate this whole situation.
Q: How is the US finance industry – people who allocate large sums of money around the world – looking at this? Till last year, there was almost bipartisan agreement between Republicans and Democrats in the US that China is the big rival. And a lot of finance people, fund managers, etc., pulled back from China, under President Donald Trump and under earlier President Joe Biden as well. You don’t think that kind of sentiment is there with regards to India, right? Because of what the Trump administration and the White House are doing right now, it’s very different, I’m assuming?
A: China represents a very substantial threat, a military threat. That is definitely not the situation with India. India has shown that it is more interested in peace rather than in confrontation. So at the end of the day, China will continue to be a strategic concern for US policymakers and Trump as well. So it’s a completely different situation, which is why I think accommodation will be made with India. The US and India will remain partners at the end of the day.
Q: You think this will last at least for the duration of President Trump’s term now – the remaining three and a half years? You think it’s going to remain a little tricky, a little tough? What’s your sense,? And this is not just about tariffs per se, but about the entire relationship.
A: I don’t think so. You must remember, India is becoming a very important manufacturer of electronic products for the US. Apple is manufacturing a lot in India now, and will continue to do so, and probably increase going forward. So, we’re going to see an expansion of that kind of activity. You’re going to see more investment by US companies in India. And one of the positive aspects of this whole situation is that I believe that India, as you know, Modi, has wanted to loosen up the incredible amount of bureaucracy that India has confronted the manufacturers with, and I believe that will begin to decline. India will begin to make reforms in terms of the bureaucracy, making it easier for companies to come in.
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Q: You’ve watched China for a long time. For the last five years, things were tense, right? Since the Galwan clashes in 2020 between India and China, there have been no direct flights. All of that seems to be changing. Maybe, of course, in the backdrop are these Trump tariffs. China is tariffed at the highest rate. Effective tariffs for China are 42%. India’s effective tariffs after exemptions are about 34%. But how do you see this relationship evolve? If, at least on the economic front, things can be normalised in terms of Chinese FDI, access to markets, Chinese technology, for example, technology transfer – do you think it could be a big one? Or, as we’ve heard from top US officials, they are surprised by what they’re seeing and don’t see this as a durable alliance. Even as the US imposes these tariffs on India, what’s your sense?
A: No, policymakers in the US realise that, from a long-term point of view, China cannot be a partner with the US. They’ve got to continue to pressure China to open up its market to US companies and to change its entire policy. But that won’t be easy for China to do.
India will be a much easier partner for the US, because it has basic principles of democracy in place. China doesn’t have that. That’s a very important difference between India and China in relation to the US. So now the hope is that the Communist Party in China changes into a more democratically oriented party, but that’s not in the foreseeable future. That doesn’t seem to be the case, at least the way things look now. Whereas India is a completely different partner to the US – a much more democratic, open society.
What has to happen going forward is that India will have to reduce the amount of bureaucracy and the restrictions that they have, not only for foreign investors, but for domestic investors as well. So once that is accomplished – and PM Modi is working very hard to accomplish that – not easy when you think about the differences between the states in India. It’s not an easy task, but that is going to be a very big game changer in terms of not only Indian development, but in terms of India-US ties and relationships.
Q: Your view was that US tariff revenues will be large and sustainable, deficits will be under control, and there’s no reason for the dollar to fall substantially. Do you still maintain those three points, given what has happened over the last couple of months?
A: Yes, I do. I think you can see the US deficit coming down as a result of the tariff revenue. You must remember also that there have been a lot of cuts in government spending in the US. That will be an important factor, but the most important factor will be the tariff revenues, and as a result, the US dollar will get stronger. You’ve already seen it strengthening against some currencies, for example, against the Indian rupee. The dollar is getting stronger. It won’t be a substantial move. You must remember, these currency moves, with a few exceptions, are not dramatic. You get a 5-10% change. But for the US dollar, that’s a big change.
Q: 5-10% change lower for the dollar?
A: Higher.
Q: So, you do realise this is a completely non-consensus view, right? Everyone out there thinks – at least the mainstream research houses and funds we talk to – that deficits continue to rise, and the dollar is expected to weaken. So, this is completely non-consensus.
A: I just don’t see it. And I noticed that gold has moved up pretty dramatically, about 5% in the last few days. So, a lot of people think, well, that means the dollar is going to get weaker. But I don’t think so. From a long-term point of view, the dollar will get stronger.
Q: The big reason why US markets have done so well is this entire AI theme. The large technology stocks. We are starting to see a little bit of wobble. Nvidia, by the way, is about 8% of the S&P, just one stock, on a market cap basis. Sam Altman recently said AI investments are a bit of a bubble. Do you sense that at all? Or do you think this is the apex technology of our times, and it will continue to drive US markets higher? What’s your sense?
A: There’s no question AI is somewhat of a bubble, in the sense that everybody is talking about AI as a big change, a dramatic development in technology. But it’s not. It’s basically an acceleration of information flow, of the speed that is possible by new chips coming into the market. But at the end of the day, there’s no question that technology is going to drive what goes forward. And by technology, I mean not only chip design, chip development, but also automation, robotisation of manufacturing. This is going to be the big change taking place going forward. And by the way, that’s one of the reasons why the US will be able to get a lot more manufacturing into the US market, because of robotisation.
Obviously, labour rates in the US do not compete with labour rates in other parts of the world, but when it comes to robots, a lot of the manufacturing will be able to be done in the US. So at the end of the day, it’s not only about AI, it’s about all the rest of the developments that are taking place in technology. And in India, PM Modi has set a target for India to do more chip design. The number now is about 20% of chip design globally being done in India. So more and more that is going to take place in India, and manufacturing will take place in India, and that will drive a lot of the technology improvements that we see coming down the pike, not only in India, but in other parts of the world.
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